Toby Theme2

• Measures of Economic growth

  • GDP
  • GNP
  • Green GDP
  • GNI
• GDP

  The value of all goods and services produced within the economy
• GNP

  GDP + goods & services produced overseas by citizens of that country
• Green GDP

  A measure of GDP that considers the environmental costs of production, such as pollution
• GNI

  GDP + net overseas interest payments & dividends
• Purchasing power parities

  Exchange rate by comparing how much a typical basket of goods costs
• Limitations of GDP

  • GDP doesn't consider the quality of goods, just their value
  • GDP doesn't consider the underground or cash transactions
  • GDP doesn't consider non-market production goods that are produced but not traded
• Limitations of PPP

  • Doesn't consider the quality
  • What goes in the basket is disputed
  • Baskets need to get updated yearly
  • Quality of economic data and systems for collecting data differs
• Real-adjusted

  Considers inflation
• Nominal

  Doesn't consider inflation
• Inflation

  The general rise in prices of goods and services
• Disinflation

  A fall in the rate of inflation
• Deflation

  The general fall in the prices of goods & services
• Consumer Price Index

  A representative basket of goods & services used, and weights are assigned to each item based on importance in people's expenditures
• Calculating the inflation rate

  Weights are multiplied by price change and are then totalled to give the inflation rate
• Limitations of the Consumer Price Index (CPI)

  • CPI is not fully representative so it'll be inaccurate
  • The non-typical household e.g. not everyone has a car
  • Spending patterns differ depending on people's life e.g. a single person doesn't buy the same as a family of four
  • Charging quality of goods & Services, although the price rises the quality may have improved
  • New products, the CPI's slow to respond to new products and services. The basket changes annually but only a few items leave
• CPI is used to evaluate questions
• Deindustrialisation in developed countries decreases the percentage of the industrial (secondary) sector of the economy
• Demand pull inflation

  Occurs when AD grows at an unsustainable rate leading to positive output. When there's excess demand, producers raise prices.
• Causes of demand pull inflation

  • Changes in real income & employment
  • Changes in government spending, taxation and borrowing
  • Changes in monetary policy interest rates
  • Changes in external value of a country's exchange rate
• Cost push inflation

  Occurs when costs increase, causing firms to raise prices to maintain profit margins
• Causes of cost push inflation

  • Rising labour costs
  • Higher prices of materials
  • Depreciation in the exchange rate increasing import costs
  • Increase in business taxes
• To calculate unemployment you do: Claimant count x100 / Population
• Unemployed

  Those who are willing and able to work, but seen it
• Underemployed

  Those who have a job but their labour is not getting used to its full potential due to working part-time or working while waiting for jobs
• Structural unemployment

  When there is a mismatch of skills & job opportunities
• Frictional unemployment

  When people are transitioning between jobs
• Seasonal unemployment

  When people can't be employed during particular times of the year
• Cyclical unemployment

  Caused by a fall in Aggregate Demand leading to a decline in real GDP & jobs
• Deindustrialisation in developed countries leads to a decrease in the industrial (secondary) sector of the economy such that manufacturing accounts for a smaller percentage of GDP. The service sector becomes more prominent.
• Capital & Financial accounts

  Flows of money associated with savings, investments, speculation and currency stabilisation
• Current account

  Trade in goods, services and net primary income (not secondary incomes like interests, profits, dividends, remittances and EU contributions)
• Current account surplus: trade in exports > trade in imports
• Impacts of current account balances

  Economic growth - As affluence increases, imports will increase

  Protectionism - helps reduce imports

  Current account deficit - causes loss, fall in AD through (I-S) component, reduces investment
• AD = total of all demand or expenditure in the economy at a given price point
• AD's calculated by

  Consumption + Investment + Government spending + (Exports - Imports)
• Real national output

  Nominal (money) national output / average price level
• Fall in AD

  Fall in net exports, cut in real share of gov. spending, higher interest rates and decline in household wealth
• Increase in AD

  Depreciation in the value of exchange rate, cut in taxes, increase in level of house and share prices
• Consumption

  The spending of households on consumer goods & services